10/19/2010 - Snoozing the wake-up call

Oct. 20, 2010 11:19 PM ET

General:

The sell-off this morning wasn’t accelerated and reversed after the first half hour, probably due to the governments intervention in the markets and trying to hold it up. However the facts remain, the markets have been trend-up for too long without a significant pullback/retracement and the upside has run out of steam. I don’t see any big up-moves happening here, even on good news, but it looks like there may be one last move upwards before we head down. Take no new position longs here, only shorts after it runs up more. But, remember that the market will still probably head a little bit higher from here, probably just above the new highs made yesterday in $SPX.

But with 50% of companies in XLP & XLY that reported missing revenue estimates, things have obviously already turned, the market just hasn’t realized it yet.

Even after the afternoon sell-off due to the BAC news, it ran out of selling momentum after 15 minutes. For these reasons, I believe the market will be headed to a new high for the month, and have closed all short positions. Right now I am long UUP still (22.63), but cut the size to 1/2 after the gap-up this morning; I am also still long PNK (from ~11.25) and TBT (from ~33.36). I still have the XLK calls and will probably look to sell them tomorrow on any strength.

Economy:

Currencies:

USDJPY- Japan is prepared to push the Yen down until “deflation is in sight” , USD also wants inflation but USD is oversold currently. Japan has also created a $61bil USD fund to buy bonds and assets including ETFs and REITs, which can be expanded as a further easing measure. I think the USDJPY will be heading up in the short-term.